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Note: Beneficiary, South Caribbean Trading Ltd., agreed to sell fuel oil to Applicant, Trafigura Beheever BV. This contract was one of a series of contracts in which Beneficiary sold wet fuel oil blend stock (WFOBS) to Applicant, repurchased the WFOBS from Applicant along with normal fuel oil to be used as cutter, and finally sold fuel oil back to Applicant. Beneficiary had developed a process by which WFOBS, normally unmarketable as fuel oil because of its high water content and thus significantly cheaper, could be dehydrated by heating and cutting it with normal fuel oil, leaving marketable fuel oil. Beneficiary rented tanks in which to perform this processing from the Bahamas Oil Refining Co. (BORCO).

Payment for the contract was to be made by letter of credit. Clause 9 of the contract required:

"BUYER ... IS TO OPEN LETTER OF CREDIT TO SELLER ... IN FORMAT ACCEPTABLE TO SELLER ... BY 8 NOVEMBER 2000 (WORDING TO FOLLOW). BUYERS ... LETTER OF CREDIT TO REMAIN INOPERATIVE UNTIL SELLER ... HAS OPENED LETTER OF CREDIT AS PER CONTRACT NO. 5508-2. UPON ISSUANCE OF LETTER OF CREDIT ACCEPTABLE TO SELLER ... UNDER CONTRACT NO. 5508-2, THE LETTER OF CREDIT ISSUED IN ACCORDANCE WITH THIS CONTRACT SHALL BECOME AUTOMATICALLY OPERATIVE."

The documents required to be submitted for payment included a BORCO entitlement exchange certificate in the same format as had been agreed under a previous deal as well as other documents including:

"COPY OF SELLERS WRITTEN INSTRUCTION TO BORCO EVIDENCING SELLER'S REQUEST TO TRANSFER TITLE OF THE FUEL OIL TO [ISSUING BANK] FOR ACCOUNT OF [APPLICANT]."

The court described the format called for by the contract as "an instruction by [Beneficiary] to BORCO to issue to [Applicant] a certificate that title to a specified quantity of fuel oil would be transferred for value on a specified date. There was an agreed format of BORCO's certificate that [Beneficiary] had title to a specified quantity of fuel oil as found in a specified tank or one to be named or a substitute tank."

As a result of problems dehydrating a batch of WFOBS for Applicant under a previous contract, Beneficiary foresaw that performance under the contract in question would be delayed. Beneficiary had access to a limited number of tanks at the BORCO facility, and the tanks that were full due to the delayed batch could not be used until emptied. Therefore, Beneficiary asked Applicant to delay the date of performance under the contract and to amend the letter of credit accordingly.

Beneficiary stated that an agreement was reached between it and Applicant that the time for delivery under the contract was to be extended and the letter of credit amended accordingly. Applicant stated that no agreement was reached because it was a condition of Applicant's offer to extend the time for delivery that the price clause be changed from a fixed price to one based on the market price. Beneficiary refused to agree to the change in the price.

Beneficiary made a claim for breach of contract against Applicant over the amendments to the letter of credit and other disputes arising under the contract. The Queen's Bench Division (Commercial Court), Colman, J., found for Beneficiary, ruling that the contract was varied to permit later delivery. The court stated:

"There can, in my judgment, be no doubt that the assent of [Applicant] to the extension of the letter of credit ... was an effective variation of [the contract] to that effect. That is because it was a new agreement supported by mutual promises - on the part of [Applicant] to accept delivery of product at a date different from [date of performance] at a fixed price and on the part of [Beneficiary] that, the blending operation having been much delayed, would successfully be completed by the new delivery date. Given that [Beneficiary] had encountered apparently insuperable problems in the de-hydration of the fifth batch under the [previous] contracts, even after more than three months, and that it was impossible to come anywhere near completion of blending under [previous contract] by [date of performance], their promise to achieve effective blending by an extended date thus provided [Applicant] with an enforceable right to obtain delivery of finished and effectively dehydrated product on a future agreed date. The fixed price, although below market price on [prior to the date of performance], might exceed market price by [several months later]. In these unusual circumstances, particularly the uncertainties inherent in the blending operation and the uncertainty of the movement of the market price, it could be said that sufficient consideration to support the variation moved from the promisee ([Beneficiary])."

[JEB/lhd]

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